Maine Voices: When it comes to tax policy, squeaky wheel might best be ignored

PORTLAND – On Wednesday, The Portland Press Herald ran a story (“Tidal Wave of aging boomers has begun”) by Susan Cover, about concerns discussed at the Aging Advocacy Summit. The presentations provided a sobering prediction of the economic effects of an aging population on the state of Maine over the next 20 years.

Already the oldest state in the nation, with a median age of 42.7 (the national median age is 36.5), almost 16 percent of Maine citizens are over age 65, compared to the national average of 13 percent. In 2030, more than 25 percent of the state’s population will be over 65 years old.

It is expected that the transportation, health care and housing needs of this huge cohort of the elderly “will put a particular strain on state and federal resources,” even as massive budget cuts in such programs are being passed or considered.

Reading that article, I was reminded of an article two months ago which quoted Gov. LePage as saying that, when the Legislature returns in January, “one of the things we’re going to try to do is pass a law so there’s no longer an income tax on pensions . . . There are two basic reasons for that. No. 1, retirees living in this state are living on a fixed income. So we need to make it easier for them to put more money in their pocket.”

He said he also wants to encourage wealthier retirees who “stay in Maine six months, less a day,” to make Maine their official residence.

“They are residents of Nevada, Arizona or Florida, where there is no income tax,” he said. “They move their wealth away from Maine, but they come back and spend summers here. . . . They are the least costly of all the citizens.”

PROPERTY WEALTH STAYS HERE

This idea is based on some assumptions which do not withstand scrutiny. For instance:

That wealthier retirees who “stay in Maine six months, less a day” move their wealth away from Maine when they make Nevada, Arizona or Florida their official residence.

The governor doesn’t say how he defines “wealthier retirees.” Maybe those with retirement incomes of $100,000, or $250,000, or more. However, it seems safe to say that the vast majority of retirees whose incomes are comprised primarily of Social Security benefits and a pension are not among those he would call “wealthier retirees.” But let’s generously assume that “wealthier retirees” are 15 percent of the retired population.

I’m willing to bet that wealthier retirees who “spend summers here” do so because most own property here, and pay property taxes to support our schools, police, etc. They don’t move their wealth away from Maine, because a good portion of their wealth is their real estate.

More to the point, these “wealthier retirees” with large retirement incomes get much or most of that income from stocks, bonds and other investment income. Eliminating income tax on pensions would make little difference to people whose incomes mostly come from investments.

My work involves many people who work hard for a living and then retire. Frankly, almost none of them seem to make their decision on where to live in retirement based on which state has the largest income tax on retirement benefits.

In my experience, their retirement decisions are driven by housing costs, where their children are living and, of course, whether they want to keep putting up with winter.

WHO WILL PAY FOR SERVICES?

I think only the quite well-heeled among us would go through the “tax avoidance” procedure the governor describes. So creating this further tax loophole would probably have minimal effect on which of our wealthy neighbors choose to remain among us for more than six months a year.

But here’s where the more recent article comes in: If the Baby Boomer tidal wave arrives as predicted (and absent some cataclysmic plague, arrive it will), what will be the effect of the governor’s new loophole on the 85 percent of retirees who are not wealthy?

They will not have to pay income taxes on their pension income. But they, along with our wealthier retirees, will be part of that huge cohort of the elderly whose need for transportation, health care and housing needs “will put a particular strain on state and federal resources.” And we can certainly expect that non-wealthy retirees from other states — Maryland, Vermont, Ohio, you name it — will move to Maine because we will then also have no income tax.

This administration seems to follow a policy of announcing proposals to remedy whatever supporters in the business and wealth communities say is a “problem” without fully considering the consequences

You can wreck a state, or a nation, by making reckless changes based on pandering to an outspoken base. Let’s not do it here.

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